Despite market turmoil, these stocks defy the trend
The age of anxiety has returned.
After posting stellar gains early in the year, equity indexes are rolling over once again, as global economic fears continue to mount.
The Dow Jones Industrial Average, which jumped 8.1 per cent in the first quarter, has given up all of those gains and then some. It’s now down about one per cent so far in 2012.
Toronto’s resource-heavy market has suffered an even deeper bout of angst over the past two months, as commodity prices tanked.
After gaining 6.5 per cent through February, the Toronto Stock Exchange’s lead index has backtracked dramatically. It’s now down 5.2 per cent since Jan. 1, and 16 per cent over the past 12 months.
While the tech-rich Nasdaq Composite Index and the S&P 500 Index remain in the black this year, these benchmarks have also faltered badly since April.
While some pundits talk hopefully about a summer rally, there are no obvious catalysts for it right now. Europe’s debt crisis continues to drag on and both the U.S. and Chinese economies are slowing markedly.
And while U.S. blue chip stocks look cheap according to some valuations, there is ample reason for it. With the threat of another financial crisis growing, investors know full well that stock market risks are high and rising.
“It is beyond bizarre to have experienced three recession scares in the first three years of a statistical recovery,” says David Rosenberg, chief economist and strategist at Toronto’s Gluskin Sheff.
“This is why pundits claiming that the stock market is attractive based on P/E (price/ earnings) ratios are mistaken. The fair-value multiple is naturally going to be much lower in a risk environment where the range of possible outcomes is far wider than in the past six decades.”
Translation: another ‘Lehman moment’ — akin to the turmoil that followed the collapse of Lehman Brothers in 2008 — is a distinct possibility.
If it happens (heaven forbid), it could send stock market indexes tumbling back to recessionary levels.
That said, some stocks have held up well this year, despite the deteriorating macroeconomic backdrop.
While dozens of stocks hit new 52-week lows Monday, Edmontonbased Liquor Stores N.A. reached a new high, topping $18 a share.
With a yield of six per cent, it continues to attract investors. Ditto for other local stocks such as AutoCanada, K-Bro Linen, Carfinco and The Brick. All have hit new highs over the past four weeks, even as the overall market continued to decline.
Here are a few other stocks that could offer investors refuge from further market turmoil over the second half of the year:
Fortis Inc. (TSX: FTS) is Canada’s largest investor-owned power and natural gas distribution utility.
Its shares closed Monday at $32.74 apiece, implying a dividend yield of 3.6 per cent.
With steady if unspectacular earnings growth and a stock price that is just 6.4 per cent off its recent record high, Fortis has held its value in a tough market.
Shares of Calgary-based Atco Ltd. (TSX: ACO. X) and Canadian Utilities (TSX: CU), founded by legendary Alberta entrepreneur Ron Southern, have also done well over the past year, gaining 11.2 per cent and 14.9 per cent, respectively.
Since both stocks have corrected recently after hitting new highs in early May, this could be an attractive entry point. Both offer modest dividend yields.
Real estate investment trusts (REITs), high-yielding restaurant chains like Boston Pizza (TSX: BPF. UN) and telecom stocks have also fared relatively well over this year, bucking the overall market declines.
Among the REITs, standout performers include Boardwalk REIT (TSX: BEI. UN), up 21.5 per cent over the past year; CAP REIT (TSX: CAR. UN), up nearly 21 per cent; Allied Properties (TSX: AP. UN), up 17 per cent; Brookfield Canada Office Properties (TSX: BOX. UN), up 10.6 per cent; and Primaris Retail REIT (TSX: PMX. UN) up seven per cent.
All of these stocks offer attractive dividend yields, some topping five per cent.
Although past performance is no guarantee of future gains, the REITs should hold up fairly well as long as interest rates remain low and pension funds continue to snap up real estate portfolios.
Among the major telco stocks, Telus (TSX: T) and BCE Inc. (TSX: BCE) continue to be standout performers in a shaky market, offering 12-month gains of 13 per cent and seven per cent, and dividend yields of 4.1 per cent and 5.2 per cent, respectively.